Redrawing the global energy map
The speed at which the revolution in unconventional oil and gas extraction is developing makes it vital for large organizations to keep a close eye on the new energy landscape.
The global energy landscape is changing so fast that governments and strategists are struggling to keep up. The pace of change is such that Pulitzer Prize-winning energy guru Daniel Yergin has said parts of his 2012 book, The Prize, are already somewhat outdated.
Shale gas has risen from 2% of US domestic production a decade ago to 37% of supply.
New techniques for extracting natural gas from shale rock have given the US an abundance of it, says Yergin. “Shale gas has risen from 2% of domestic production a decade ago to 37% of supply, and prices have dropped dramatically. American oil output has increased dramatically, by about 38% since 2008.”
US oil production is expected to rise further – by 40% between 2011 and 2014. Together with plentiful gas and gas liquids, these cheaper fuels and chemical feedstocks are driving a chemical and manufacturing renaissance in the US, with US$100b of planned investment in the nation’s chemicals sector alone.
According to Yergin, this “great revival” of the US oil and gas industries (oil production is now at a 20-year high and there is plentiful natural gas, but both were considered dwindling resources for many years) is spreading, as prospectors explore global shale gas and tight oil reserves. The trend is upending policy and business plans based on scarce and evermore expensive energy sources. It is throwing cross-border manufacturing strategies into question, challenging established energy security assumptions and threatening other energy generation sources, notably coal and nuclear.
According to Aviezer Tucker, Assistant Director of the University of Texas Energy Institute, it is also threatening the dominance of “energy mega-suppliers,” including Russia, Saudi Arabia and Venezuela. In future, says Aviezer, most countries can expect at least some domestic energy resources, and will turn to near neighbors to help them meet much of any supply gap.
The global impact is already being felt (notably in the steady erosion of the pricing link between oil and gas prices) and it will only increase, according to Nick Grealy, Energy Consultant and writer of the Nohotair blog, which champions the benefits of shale energy. “The US is not singularly geologically blessed. There are shale resources almost everywhere,” says Grealy.
While exploration for these resources is under way in many regions from China to Africa and South America, the next big production revolution may well happen in Europe, says Grealy, despite much conventional wisdom claiming the contrary. Europe, he believes, stands to benefit from the hard-won experience of US innovators, and so should be able to extract unconventional gas and oil faster and cheaper.
“Europe has two great advantages. It is the world’s largest gas market and it is sitting on a gas grid, making it easy to access. It will be using the most up-to-date technology and will probably need to drill 10% of the wells drilled in the US.”
Peak oil and gas fears that have shaped much of the energy debate in recent years are now dead, he adds. “There is so much gas supply that we have to find new uses for it. Power generation is one thing but natural gas in transportation is going to be really big over the next 5 to 10 years. It will have a big impact on oil consumption.”
The rise of unconventional oil, which has come out of nowhere in two years in the US, could be similarly transformative, adds Grealy. “It has an impact across the industrial sector; it impacts food companies and expands out into the whole macroeconomy. For organizations as energy consumers in general, it should be good news.
“If one thinks of energy as a tax on civilization, this will have the same impact as if taxes were to fall. It’s not going to be business as usual over the next decade. It will change the world in ways we have not even considered.”
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